Broadcom: CLSA Ups to Buy on LTE Promise of Renesas Deal

By Tiernan Ray

Chip maker Broadcom (BRCM) is receiving plaudits today after announcing this morning it plans to spend $164 million to purchase the baseband chip assets of Japanese semiconductor outfit Renesas Electronics to enhance its wireless offerings for mobile devices.

The baseband chip market for phones and tablets and other gadgets has long been dominated by Qualcomm (QCOM)

CLSA Asia-Pacific Markets’s Srini Pajjuri raised his rating on the shares to Outperform from Underperform, with a $30 price target, up from $26, writing that the deal was one of the only ways for Broadcom to improve it’s lagging position in chips for long-term evolution, or LTE, the fastest mode of cellular data access.

“While we don’t expect Broadcom’s fortunes in baseband to change right away, the acquisition should position the company as a viable second source in LTE,” writes Pajjuri, “which should also help stem potential share losses in the WiFi/BT connectivity business.”

Pajjuri offers some color on the deal:

The deal is expected to be dilutive to 2014 earnings by $0.10-0.15, but is expected to accelerate the LTE shipments to early 2014 from 2H14 (by about six months). Management indicated that the solution is already certified by multiple carriers including AT&T, NTT and Vodafone. Management’s comments imply that the company is engaged with multiple OEMs, with Samsung potentially in the mix. The deal is expected to be neutral by 2H14, which implies a revenue run rate of $70-75m/quarter exiting 2014.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.